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India’s Gross Domestic Product (GDP) growth slowed to a three-quarter low of 4.4 per cent in October-December 2022-23 primarily due to a 1.1 per cent contraction in manufacturing, along with weaker private consumption demand and government expenditure, according to data released by the National Statistical Office (NSO) on Tuesday.
Slowing from 6.3 per cent in July-September and 13.2 per cent in April-June quarter, the third quarter reflected the impact of subdued consumption demand and exports amid rising input costs and interest rates as the Reserve Bank of India remained focused on “withdrawal of accommodation”.
For the full financial year 2022-23, NSO has retained the growth estimate at 7 per cent in the second advance estimates. Revised data for previous financial years was also released which saw growth rate for financial year 2021-22 being revised up by 40 basis points to 9.1 per cent from 8.7 per cent earlier. There was upward revision for Covid-period too with GDP for 2020-21 now estimated at (-) 5.8 per cent instead of (-) 6.6 per cent earlier.
The fourth quarter GDP estimate at 5.1 per cent is way higher than the projection of 4.2 per cent for Q4 given by the Reserve Bank of India (RBI) in its December policy review (with FY23 growth estimate at 6.8 per cent).
Private consumption expenditure slowed sharply to 2.1 per cent in October-December from 10.8 per cent in the corresponding period last year and 8.8 per cent a quarter ago despite robust high frequency data. Manufacturing continued to be in the negative territory for the second consecutive quarter at (-)1.1 per cent in October-December as against (-) 3.6 per cent in April-June and 1.3 per cent growth in the year-ago period, indicating impact of rising input costs.
Chief Economic Adviser V Anantha Nageswaran said manufacturing, on the face of it, has slowed down but there are enough high-frequency indicators showing fairly robust manufacturing activity. “Manufacturing appears to have slowed down on the face of it due to rising input cost, but if you look at PMI (Purchasing Managers’ Index) indicators, the manufacturing sector is in good health and performance of core sector in January tells us we do have a fairly robust manufacturing growth rate in the fourth quarter,” he said.
The economy will have to grow at least 5.1 per cent in the last quarter (January-March 2023) for achieving the full year growth target of 7 per cent. This may be difficult since interest rates are rising, suppressing demand.
Nageswaran said quarter-on-quarter changes are less consequential and since they are not seasonally-adjusted, it should be seen with caution. “We need to be prepared for tighter financial conditions globally, weather-related uncertainties and geopolitical factors. 2023-24 may not see a big-ticket shock as we saw in early months of 2022-23 as the war broke out in 2022 but nonetheless some of the underlying factors are still simmering and we need to be watchful,” he said.
With a 7 per cent growth rate estimated for the full financial year, GDP is expected to grow at 5.1 per cent in the January-March quarter. With the revisions undertaken for the previous fiscal, the GDP components for FY23 also underwent revision: government final consumption expenditure has been revised down to 1.2 per cent from 3.1 per cent earlier; private final consumption expenditure is now estimated at 7.3 per cent down from 7.7 per cent earlier; while gross fixed capital formation – an indicator of investment – is seen growing 11.2 per cent as against earlier estimate of 11.5 per cent.
As per the data released Tuesday, India’s nominal GDP, which factors in the inflation rate, is set to grow by 11.2 per cent in October-December as against 14.3 per cent in the year-ago period. Gross Value Added or GVA — which is GDP minus net product taxes — grew at 4.6 per cent in Q3. Usually, GVA is lower than GDP. “The tight control on the fiscal deficit and the larger subsidies given this quarter by the government has lowered the contribution of this sector to GVA and GDP,” Madan Sabnavis, Chief Economist, Bank of Baroda, said.
Among sectors, agriculture is seen growing at 3.7 per cent in October-December as against 2.4 per cent in the previous quarter and 2.3 per cent in the year-ago period, while the mining sector is seen growing 3.7 per cent in Q3 as against a 0.4 percent contraction in the previous quarter and 5.4 per cent growth in the same period last fiscal.
The services sector, which is the largest component of GDP, posted a growth of 6.2 per cent during the quarter. Construction recorded growth of 8.4 per cent in Q3 as against 0.2 per cent in the year-ago period, while trade, hotels, transport and communication grew at 9.7 per cent in Q3 as against 9.2 per cent in the year-ago period.
“Some of its segments which were severely dented for being contact intensive and were not showing signs of revival in FY22, have also begun to show growth momentum,” Sunil Kumar Sinha, Principal Economist, India Ratings said.
Net exports were broadly flat as weakening import demand and falling prices helped cushion the impact of falling exports. “In terms of contribution, while domestic demand added less to growth, the drag from net exports reduced as well, somewhat balancing each other out,” Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays said.
